In the many reactions I received yesterday to the front page Camera article on my recent CHE piece-- ranging from emails to comments at the bus stop -- it is clear that most people fail to distinguish between (a) the sticker price of tuition and (b) the state subsidy of tuition. What this means is that people really have no idea that tuition for in-state residents is actually subsidized, but at a level that does not allow the books to balance. It also means that some Colorado residents, when they hear a call for a levelized tuition for in-state and out-of-state students, think that the cost to them will double. This is not necessarily the case.

Have a look at the graph above (source), which shows Colorado state funding per resident student. In round numbers, the state provides about $3,000 per student. If the state allows the university to charge about $8,000 per student in tuition, and the cost of running the university requires a break-even tuition of about $14,000, then you can see that the result is a loss of $3,000 per in-state student. That adds up fast -- it is a $60 million shortfall.

How does the university make up the difference? Answer: Out-of-state students! In 2010 the proportion of out-of-state students at CU was larger than at any time since 1975 (data, it was 34.5% in fall, 2010 and state law allows it to go to as much as 45%). From 2005 to 2010 the number of CU in-state undergraduates shrunk by 1% while the number from out-of-state increased by 17%.

If the state were to allow a levelized tuition, then it could still subsidize the costs of attending CU for state residents -- at whatever rate it deemed appropriate by subsidizing directly those residents accepted to the university. Imagine what would happen if the university charged the full cost of tuition ($14,000) and the state provided individual students with a check for its current subsidy per student ($2,800) -- Colorado residents would immediately see that the subsidy does not go very far, and it might lead to a different conversation about the state role in higher education. In addition, subsidizing the student rather than the institution would also allow for a greater focus on need-based support rather than simple geographic residency. Of course, there would be no requirement for each state university to follow the same tuition model, a diversity of approaches would probably make sense,

It is worth saying something about cutting costs. Some might argue that the university should simply cut $60 million of fat from its budget in order to balance the books. There are two responses to this. One is that all the fat has been cut and the university is now actually deep into bone (see, e.g., graph above). The second is that while academia is far from a perfect market, at some level you do get what you pay for -- consider that Stanford charges about $38,000 per year in tuition. CU simply cannot compete with the Stanfords of the nation by charging one third as much in tuition. Now perhaps Colorado residents or its legislature do not want CU competing with the nation's top research schools for students, faculty, research, etc. -- an open debate about where the state schools (all 12 of them) ought to aspire to in a national context would be a valuable contribution to the discussion.

The bottom line is that the current model for state university support is badly broken in a number of ways. University performance is disconnected from its market price. Admissions decisions are increasingly based on who can pay the most. Budgets have been cut to the bone. Ultimately, something has to give, and in the end it will be the quality of education and research at the institution. For those wishing for a cheap university, be careful what you wish for, as you might just get it.